September 18, 2021

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Hartalega Phenomenal Results Update (Q1 FY22)

Pix Source : Astro Awani
Dear all, I find this results commentary particularly hard to write. This is because I have been writing on gloves for a long time and I have also written on Hartalega in my book Once Upon A Time In Bursa. I will try to express this as objectively and honestly as I can.

Hartalega's Revenue this quarter is 70% higher than the previous quarter at RM3.9 billion. The PAT stands at RM 2.26 billion which is 90% higher than previous quarter. The PAT in this quarter alone stands at 76% of last year's full year results. The cash position swelled to RM3.45 billion whilst the net cash position is around RM 3 billion (about 13% of current market cap). For FY 21, Hartalega further declared 19.75 sens dividend payout bringing to full year. The dividend yield is 7.43% at current share price of RM 6.87. Please note the dividend payout is for last FY 2021, not FY 2022 as this is only Q1. Which means, you can count on the DY for FY 2022 to exceed FY 2021.

To put things into perspective for readers to understand how phenomenal Hartalega's results are, the combined net profits for Hartalega from FY 2013-2020 is RM 2.55 Billion. FY 2021, the full year PAT was RM 2.89 Billion. This quarter alone, it is RM 2.26 Billion. It effectively means that this single quarter, Hartalega has made a net profit close to what it took 8 years pre-pandemic to earn.

I knew results would be out early August. So when Hartalega share price started selling off last week, I was worried especially when the share price surged to a high of RM 7.90. Even this morning, there was a massive selloff in Hartalega's share. I was wondering, where did I go wrong in my assessment? Could it be that Hartalega's quarterly result would be a disappointment due to MCO, EMCO and 60% operational capacity? Turns out it was amazing.

At current valuation it seems the market is pricing, Hartalega to be making losses in all future quarters. The current share price totally disregarded the past 1.5 years of Covid-19 earnings. Not even companies like Zoom, Netflix, Owens & Minor, which are all pandemic beneficiaries reverted to below pre-pandemic share price.

I believe readers would know by now I am one of last few writers who is still a believer in glove companies and the prospect. I wrote publicly in my social media and I also wrote in my first article as financial columnist for StarBiz Weekly on 17th July 2021 titled "Should Retail Investors Still Believe In The Glove Sector". I have been consistent, honest and objective in all my writings. So I must say this, even I did not expect Hartalega to deliver an earnings as strong as they did today. With MCO, EMCO, my own estimation for results this quarter would be RM 1.1-1.3 billion range. Hartalega's result beat my own estimates and other analysts' consensus by a mile.

Last week, a Foreign IB slashed Hartalega's TP to RM 5. The contention for the glove sector since 2020 was how to value glove companies. This has become a thorny subject between various parties. The fact is this - most people adopted the wrong valuation method on glove companies. This is the truth.

Here, I would like to take my hats of to Hartalega's management especially on two grounds : 

1. ability to sustain & deliver 
2. honesty. 

____________________________

"It is not easy as shareholder to see the market price your company wrongly and listen to inaccurate reporting on your company's performance prospect."
 

It is already August 2021, the world is still grappling with Covid-19 and now Delta variant. The issue is not just about earnings but as mentioned by the management of Hartalega - structural step up in demand due to increased awareness of hygiene practices.

When we invest in companies, we cannot value the company based on its immediate earnings alone or historical performance alone. We must take account of its past, present and future performance as part of the valuation approach. Here, I would like to take my hats of to Hartalega's management especially on two grounds : 1. ability to sustain and deliver 2. honesty. It is not easy as shareholder to see the market price your company wrongly and listen to inaccurate reporting on your company's performance prospect.

Lastly, Malaysia has very few sectors where our country dominates world leading market share position and export globally. The glove sector is one of the few. Even if ASP declines gradually and normalises over time, when valuing company, it is wrong to ignore their retained earnings, cash position and management ability. I shall leave it at that.

-----------------------------------------------------------------------------------------------------------

Author of "Once Upon A Time In Bursa", please click HERE or MPH Bookstore


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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.

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